How to Start an HVAC Business - Tips From an HVAC Contractor

Tim K.

15:23, 31 August 2016

17062

Figuring out how to start an HVAC business is one of the toughest things you’ll ever do in your career. I know; I’ve done it. But, if you are smart, and want to start reaping the rewards of all your hard work, it is something that you’ll need to do sooner or later. But there’s more to it than you might think – you’re not slinging ductwork in an attic anymore, and starting an HVAC business is completely different from anything you’re used to. This article will be different than most of ours, mainly in that All Systems Mechanical typically writes articles for consumers, not for our fellow HVAC brethren. That being said, however, we’ve built our reputation in the HVAC industry as a small, U.S. Veteran-Owned company that was built on a foundation of honesty, no nonsense, and quality workmanship; you should do the same. So, in this article, we will discuss how to start an HVAC business, some key things to consider before figuring out how to start an HVAC business in your area, and most importantly, how to divide your time properly to ensure that you’re not just starting an HVAC business…but you’re starting a successful HVAC business!

How to Start an HVAC Business – Some Tips Before We Start.

So, it’s the middle of summer, you’ve been crawling through attics all week and the boss asks you to come in on Saturday too, but he can’t pay overtime this week. To hell with that – I’m going to figure out how to start an HVAC business and just do this myself.

Time-out, hit the brakes, and slow it down, sparky. There’s a lot more to it than you might think. I’m not trying to talk you out of it – after all, I did it myself. But there are a lot of factors that you might not have thought about before you started this journey. Many of the tips in this article were mistakes that I made, and learned the hard way. Others are based more in administrative fact. Either way, let’s discuss a few things you should consider before we talk any further about how to start an HVAC business.

Tip # 1 – Before You Start an HVAC Business, Discuss it With Your Family.

This may seem like a no brainer, but most HVAC guys (myself included), just say: “Hey honey, I’m sick of this – I’m going to start my own business…what do you think?” There’s more to it, though. Make sure that your significant other knows some of these things, and discuss them with him or her in-depth. If things aren’t good at home, you will not succeed. You’ll be stressing about your home life, and then you won’t be focusing on how to start an HVAC business and keep it growing to the point where it can not only support you, but make you comfortable!

For the first few years of starting an HVAC business, money will be tight.

You are growing a business from scratch, and getting your name out there isn’t easy. One of the things I did to help ASM get off the ground was go to business school. This is not necessary, but one of the things they taught me was that breaking into a saturated market is one of the hardest things to do in business. Whether you realize it, or not, almost every city is saturated with HVAC businesses. Think about it – how many outfits are in your area alone? Why would someone choose you, some new guy, when they can call someone whose name they know, recognize and have seen before? But to break into the market and open your own HVAC business, you’ll have to take some of their business and turn it into yours, and until you figure out how to do that, money will be tight. Remember, because I’ll say it at least three more times…eight or nine out of ten small businesses fail within the first five years. There are things you can do to increase those odds, which we will talk about a bit later.

To start an HVAC business, you’ll be spending a lot of time away from the family.

You’re no longer clocking-in, working, and then clocking-out anymore. Now you’ve started an HVAC business, and you not only have to know the HVAC side of things, but you need to spend time marketing, advertising, organizing, vetting and hiring employees, and all sorts of other things you’ve never even heard of. When Mike and I started ASM, we’d work an entire day, then come home and do six hours of work online to help grow our business. Look, it’s very rewarding, but make sure that your husband, wife, kids, and dog know that until this thing takes off, you are going to be busy all the time. Pro Tip: most guys spend all their time trying to figure out how to start an HVAC company. But starting an HVAC business puts a lot of stress on even a healthy marriage. Every week or two, plan a nice, surprise dinner with just you and the wife, and make sure that you thank her for her support. Send her flowers on some random day. Look, I’m not a marriage counselor, but I do know that when I neglected the wife and she got upset, I wasn’t sleeping, and my mind wasn’t in the game. It probably sounds kind of stupid, but you are going to be so engrossed in what you’re doing, and so excited, that time will be flying by for you. But to her, you’re just busy all the time – time is standing still. Hard schedule it just as you would a crane-set. It is your priority…even over the business, and it will turn your marriage into one of your greatest strengths. A happy home life will translate to a more successful business…I promise.

You are starting an HVAC business, but realize that you might fail.

Most new business owners live in denial. But, failure is a definite possibility – talk through this with him or her, and what you will do if this happens. Sometimes it happens for reasons outside of your control. Regardless of whether you are thinking about it, or not, she will definitely be thinking about it – guaranteed. So show her that even if the HVAC business doesn’t make it, you guys will still be alright and taken care of, because you will. If you aren’t financially stable enough to support you and the family for at least six months or a year, start to save money before you start thinking about how to start an HVAC business. Trust me. Mike and I were both in the military, and we both saw combat…failure was not an option for us, but even we sat down with our wives and showed them that we had considered how things would go if the HVAC business didn’t make it, and that we would be just fine financially. Remember: eight or nine out of 10 small businesses will fail within the first five years.

Getting your spouse onboard is one of the most important things that you can do. Here is an article on why that is so important:

Tip #2 – Don’t Think About How to Start an HVAC Business, Think About How to Start a Successful HVAC Business.

It seems so simple, but asking the question from this aspect has two distinct advantages: first, it wires your mind to succeed and keep a positive attitude – this is one of the most important parts of success; and second, it makes you ask the right questions. You shouldn’t be concerned with how to start an HVAC business; anyone can do that. What good is it if you don’t succeed? What will distinguish you from your competitors? Why will you stand out? Will you have better prices? Will you offer different products? Will you have higher prices, but better service? Ask and answer these questions before you start an HVAC business.

When I was in survival school, the most important thing that they taught us was that a positive mind is the absolute, most important thing in any survival situation. Think about it…does food and water really matter if I’m down all the time, not eating, and thinking, “we’ll never get out of this.” The same is true for business…if you’re going to play, play to win. Don’t go into this if you’re going to be saying, “I’ll give it my best shot and see what happens.” Giving it your best shot is what losers do…for winners, they don’t know anything but how to give their best shot – there is no other option, and they are thinking about the win…what do I do to crush my competition and build the company into the best possible company I can make.

Tip #3 – Will You Have a Partner to Help You Figure Out How to Start an HVAC Business?

Two minds are better than one. It has always been this way. Put some strong consideration towards going into this with one of your friends, but make sure that it is someone you can trust. Are they honest, or just talented? Whenever Mike and I talk to someone who is interested in starting an All Systems Mechanical branch of their own, I start by trying to talk them out of it. I ask them, “will you do anything to make sure that this branch succeeds?” If they answer, “yes,” then I ask them, “really…?” The answer should be, “No, not anything, but we are going to succeed. Period.” Think about it, are you going to cheat people, or tell them that something needs to be replaced if it doesn’t? My point is, some people will do whatever it takes to make money. But they never make out in the long run. It always catches up to them in the end. I’ve seen so many of my competitors go under from lacking this one, simple idea – be honest.

It’s okay to be different as partners – that way you have different ideas on how to grow, but if your partner isn’t like you ethically, then you guys will be fighting after a month in business. Pick your partner carefully, and always, ALWAYS split it 50-50…no one has a bigger share than the other. You are a team…act like one from the start. Okay…now to the meat and potatoes…

Tip #4 – Think in Terms of Running a Small Business, NOT How to Start an HVAC Business

What I mean by this is simple – the majority of your time will be filled by doing the same things that all small business owners do…administrative tasks, advertising, finance, etc. So before moving forward, just forget for a moment that we are talking about an HVACbusiness, and instead think just about starting a business. Do research on how to start a small business – think less about ductwork and air conditioners, and more about fundamental small business principles. Kind of like this video, for a start – videos like this, despite not being specifically about how to start an HVAC business, will be very helpful in getting you started:

How to Start an HVAC Business – Part 1 – Franchise or Solo?

I went a long time without truly knowing what a franchise was. So let’s take a look at an applicable example…let’s look at our company – All Systems Mechanical…

Starting an HVAC Business – What is a Franchise?

We started from scratch as a small, but eventually successful HVAC business consisting of myself, my partner, and very soon after, our first employee. We have grown considerably since then, of course. But this early phase is the time that a company is at its most vulnerable – you have mouths to feed, no one knows who the hell you are, and you now have all these expenses: employee salaries and payroll, insurance, truck payments, workman’s compensation, etc…how do you make ends meet?

To be honest, most small businesses fail within the first five years for this very reason…lack of capitol. In other words, they haven’t built enough of a reputation to support themselves – they don’t make enough money. You don’t have the money to keep going, and you haven’t been in business long enough to build that reputation. It’s scary…so anyone out there that wants me to tell you that it is all roses and $10,000 paychecks, then you’ve come to the wrong guy…we are straight shooters.

In fact, only one out of every ten small businesses makes it…the rest will go out of business within the first five years. That’s a fact…no one knows who you are, you don’t know how to advertise or market yourself, and you just aren’t getting the money to come in like you thought you would. Besides, don’t forget that you have competition…competition that is already established, and that has a solid reputation and presence. Why should someone choose you? It truly is David vs. Goliath…except that everyone knows the name Goliath in your industry, and as for David…”David who?” It isn’t as easy as it looks…believe me, and there were many times that Mike and I started to doubt ourselves. Everyone does…of course. But, as we told ourselves, if a special forces guy and a Naval Aviator can’t make this work, then I don’t know who the hell can…

We made it, though…and we made it by figuring out the business strategies that can not only make any HVAC business succeed, but that made us unique from our competitors. I sent myself to one of the best business schools in the world, The Wharton School of Finance, and learned some of the principles that would not only make our company live on, but thrive. But here’s the kicker…there is always a bit of luck involved. No matter how prepared you are, and no matter what education you receive, the economy might turn, an employee might have an accident, and things might not take off the way you expected them to…in looking back, there was always a bit of luck on our side. So we made it as a small business, on our own, and defeated the odds to become a big fish…how did we do it?

Let’s discuss the idea of a franchise… a franchise, in its simplest form, is when you take the name and reputation of an existing company, and incorporate it into your own small business, allowing you to skip many of the shortfalls that get those eight or nine out of ten small businesses. In short, instead of starting from scratch and building yourself up, you have a big brother (or fatherly figure, if you’re not an Orwell fan) that teaches you the ropes, and then gives you a head start, and a name to run with which already establishes your reputation. Let’s look at McDonald’s as an example…you could start your own burger joint, and that would be fun. It would be completely yours, with your ideas and recipes. There would be a lot of stress though – would enough people come? How will you run your payroll, inventory, etc? How will you advertise, and how much will you spend? Better figure it out and fast…maybe you’d make it, maybe you wouldn’t. But, if you started a McDonald’s franchise, you know damn well that people will be lining up at lunchtime and ordering Big-Macs, make sense?

So, we at ASM have figured out a successful business model for HVAC businesses – we know how to make our company succeed. So, you call us up and say, “Tim, I would like to start an HVAC business.” I would then tell you that you can do this one of two ways: first, you can start it up from scratch, build your reputation, and fight to be the one in ten that succeeds…it’s doable…after all, we did it…why can’t you? Second, if we liked you, we could fly you out here to California, show you how to run a business our way, how to balance your expenses, how to market yourself, build up your local presence, then let you use our name, marketing and reputation: you’d own and run “All Systems Mechanical – Phoenix,” for example…you would then be considered a franchise. Get it? There’s just one small problem. We are not a franchise…and we don’t really want to be a franchise. In fact, I hate franchises – but, I’ll get to that in a moment.

Typically, in return for taking the franchisors name and reputation, you pay a percentage of your revenue back to the company, and in return, presumably, you get to skip the painful parts of figuring out how to start an HVAC business, like: how to balance your expenses, and how to avoid the landmines that await all new HVAC businesses. Sounds great, right? Why not? Sign me up for a franchise!

Hold it, sparky…don’t be so gullible…because there’s always a catch…it’s not all roses and sunny days. More on how to open a franchise, if you are interested, can be found here:

The Cons of Starting a HVAC Business with a Franchise

Look, we are straight shooters – I could never stand car salesmen for that reason. One of the biggest problems that I have with the franchise model, is that it is built to make the owner of the franchise rich, while the franchisees scramble around and try to make ends meet. Those of you who are veterans know what it means when someone says something twice…so I’ll say it again: the purpose of a franchise is to make the franchisor rich, not you. If your branch doesn’t make it, oh well…that’s no skin off the franchise-owner’s back. “That’s a you problem, not a me problem…,” as the saying goes. We actually explored the option of franchising ourselves…spreading ASM branches throughout the country. Unfortunately, however, there is no real way to do it without screwing the new branches over…not interested.

You see, most franchises sell you on the idea that they are going to make everything easy for you, teach you everything that you need to know…but then they not only throw you into the deep-end to fend for yourself, but they run your entire life at the same time – yes, it’s possible! Imagine the worst boss you have ever had. You have to buy certain products approved by them, purchase clothing through them, get approval for add campaigns through them, get approval for expansion, and the list goes on and on and on.

By starting a franchise, you are inviting someone you don’t know into your life, and giving them a large portion of your profits. Oh, and don’t forget, you have to buy into the franchise too…that’s not free! Oh, you still own your branch…but you work for someone else. What’s the point of starting your own business and putting your financial future on the line to work for someone else and give them some of your profits?

Typically, to start an HVAC business by yourself, you’re looking at paying for several large expenses, like your licensing fees, a truck, and the equipment to get started, not including an employee, or two. With a franchise, however, you still have those expenses, plus:

A one-time buy-in fee of around $50,000 (some are as high as $80,000 to start an HVAC business via franchise). This is for them to “send you to school” and show you how to run your business.

And you pay them around 7-10% of your revenue, paid every quarter (if you’re new to finance, revenue is basically everything that you make, before you take out your taxes and expenses. In other words, it doesn’t matter if you turn a profit…you still owe them money).

And don’t forget your quality of life concerns:

You own the local company, sure, but they own you, and in their articles of franchise, they will list out page upon page of legal jargon in which you have to run you business in accordance with their rules for everything…no matter what, or you forfeit your HVAC company.

Your primary roll is to make the franchise money, not to make yourself money.

Who the hell wants to deal with all that? I don’t…that’s why I started my own business, and didn’t buy into an air conditioning franchise like One-Hour Heating and Air Conditioning. I’d recommend you avoid doing the same.

“But Tim, I heard great things about ASM, and how you take care of your guys…can’t I just start a franchise through you?” Nope. Sorry sparky…we are extremely selective about who we let open ASM branches, and chances are, you don’t qualify anyway…yes, of course I’m joking, but we aren’t a franchise. So how can you start your own HVAC business? Check out this article for more before you commit:

How to Start an HVAC Business – Part 2 – Must-Do Tips for Business Success.

Whether you are figuring out how to start an HVAC business, or just curious about how to improve your own business, you need to know that building a successful business is about relationships. But before you can build relationships, you have to earn credibility…and that starts with acquiring your contractors license from the state, and acquiring the appropriate insurance and bonds.

How to Start an HVAC Business – State Contractor’s License

Figuring out how to start an HVAC business can be an overwhelming leap into the world of paperwork and bureaucracy. The requirements for acquiring a contractors license will vary by state, but typically, they are all roughly the same, including:

Proof of Minimum HVAC Experience – typically four years of Journeyman-Level HVAC experience.

State Contractor’s License Test – in California, it’s called the “C-20” test, and as you might imagine from a bureaucracy such as the California government, the test has almost nothing to do with actual HVAC knowledge. Most of it consists of what has been deemed to be “general knowledge” by some guy in an office whose only experience with air conditioning is turning the AC up or down on the thermostat. The test also includes knowledge on your state’s individual laws regarding contracting, which, in California, basically does everything it can to completely cripple a small-business owner, which is why so many companies move out of state, and California’s economy is collapsing…but, I digress.

Application for an HVAC Contractor’s License – once you pass the test, you will fill out your application, include your verification of minimum HVAC experience, and pick a name for your new company (unless you decided to franchise, in which case, that will be chosen for you). It will take you several months to get this name approved, as the state will publish this name in several publications to make sure that no one else has claim to the name. It will then have to be approved by…you guessed it…another bureaucrat. A funny story in regards to our name, All Systems Mechanical, is that the bureaucrat assigned to our case told us we couldn’t use that name. We were actually denied by this guy because, “you are not ‘mechanical engineers,’ and the name ‘All Systems Mechanical‘ means that some people might think that you are engineers.” Of course, arguing with this automaton was useless, but when we called back on their customer service line, we explained to the second bureaucrat that “mechanical” has nothing to do with engineering, and is, in fact, an industry term for HVAC. Approved. Stamped. Anyway, my point is that you are going to have all sorts of fun picking a name and then fighting with the state…just expect it…

Pay the Required Fees – come on now…it’s the whole reason that bureaucracies are able to even exist…the fees! In California, the fees ended up being somewhere around $400 – $500, so in your state it will probably be about half that.

For a quick guide on what you need to do for proper licensing in your area, try this:

My advice to you, would be to lead-turn this as quickly as possible and submit the paperwork early. I think that it took us around two months from start to finish before we could legally do work, so take that into account.

TIP: There are private companies that offer preparation courses for the contractor’s license test. I would highly recommend taking one of these courses – they typically run around $300, but they really prepare you for the test.

How to Start an HVAC Business – Contractor’s Insurance

There are typically two types of insurance that are required when figuring out how to start an HVAC business:

General Liability Insurance – this is what protects you if, for instance, a roofer walks by on your job-site, accidentally kicks loose your furnace, and two years later it goes through the roof and the person decides to sue you. You have to have it; period, the end. It protects you.

Workman’s Compensation Insurance – this is only required if you have employees. In most states, the owners are not required to carry it if they don’t have employees, so starting off, you might not need it. However, it protects you if an employee gets hurt on the job, or pretends to get hurt on the job, which is apparently more common – something I’m fortunate enough not to have experienced first hand, knock-on-wood. Check your state requirements on Workman’s Comp. Insurance.

How to Start an HVAC Business – Contractor’s Bonds

Each state is different, but before you can start an HVAC business in California, you are required to acquire a contractor’s bond. This bond is used in case you do not complete a job to the clients’ standards, and decide to skip-off. They complain to the state, and the state takes your bond until you rectify the situation. In California, the bond requirement is $15,000 – good reason to do your job properly.

For information on how to obtain a bond, here is a national company that offers contractor bonds (we are not endorsing them, but it’s a good place to look for information):

Of course, we have heard several other contractors report of customers filing a complaint against the bond and demanding they pay them their money back (simply a dishonest way to save money and get AC for free) – it is not what the system was designed for, of course, but it is a legal means of extortion that is provided to the consumer by the State of California, so be careful of this trick – it’s probably easier to pay them off…if you can stand to do it. Whether your pride can handle it…that’s on you.

How to Bid as an HVAC Contractor

Learning how to bid a job fairly as an HVAC contractor is more of an art, than a science. Before you start, you may want to consider using our online bidding calculator. With it you can bid jobs with confidence, get the hang of things before bidding on your own, and see how much money you’ll make off of every job, while also providing a useful service – at fair prices – to your customers.

Bids the HVAC job for you, at a fair price, right from your phone or laptop.

Calculates profit margins for each job.

Lookup contractor pricing for equipment.

It designs the system for you, including recommended AFUE, SEER values, AC tonnage, and furnace BTUs based on the project information.

Further Tips on How to Start an HVAC Business

Start Small – we see competing businesses making this mistake all the time – they overextend because business is good, and once that business dries up, they have 12 trucks and 24 guys sitting around. It get’s expensive very quickly. I’d stay a one-man-show for at least a year, and see how your business does in all four seasons.

Advertising – spend some money after start-up, but don’t overspend on advertising. It is an easy way to overextend your reserves, and you’ll need those when business is slow. Make sure you register on free sites like Home Advisor and Yelp! TIP: AVOID USING THEIR PAID SERVICES. In our experience, you’ll get just as much business without paying for it.

Give Advertising Literature to Clients – a referral from someone who has used you is worth more than spending $5,000 on traditional advertising. “Hey, Herb…use this guy…he’s great!” is worth it’s weight in gold, and it’s free, minus the cost of a few business cards.

Have a Reserve – don’t live paycheck-to-paycheck – find a number that is a good, comfortable number which you can support your family on for six months incase you hit a cold-spell. $30,000? I don’t know – pick a number that works for you – save that up before starting you business.

Final Thoughts on How to Start an HVAC Business

Figuring out how to start an HVAC business can be intimidating, but it’s well worth the journey. Keep your head down, work hard, and unless you like having all the financial responsibility of owning a business, while reporting to a boss who tells you how to run your own business, avoid opening a franchise branch. If they can do it, you can too! Good luck starting your HVAC business, and I hope this helped. Remember, these are just my opinions and experiences…make up your own mind, and go from there. Follow the tips above, pay attention to what your customers tell you, and you’re business will be thriving in a few short years.

Be an Insider, and Get Your HVAC-Facts Report Before You Talk to a Contractor

The University of Virginia - 2005 / The Wharton School of Finance - 2016 / U.S. Naval Aviator 2005-2015.
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